Tuesday, August 27, 2013

A Must Read- The Global QE Exit Crisis

Central bankers have done
everything in their power to finesse these problems. Under the
leadership of Ben Bernanke and his predecessor, Alan Greenspan, the Fed
condoned asset and credit bubbles, treating them as new sources of
economic growth. Bernanke has gone even further, arguing that the growth
windfall from QE would be more than sufficient to compensate for any
destabilizing hot-money flows in and out of emerging economies. Yet the
absence of any such growth windfall in a still-sluggish US economy has
unmasked QE as little more than a yield-seeking liquidity foil.

The
QE exit strategy, if the Fed ever summons the courage to pull it off,
would do little more than redirect surplus liquidity from
higher-yielding developing markets back to home markets. At present,
with the Fed hinting at the first phase of the exit – the so-called QE
taper – financial markets are already responding to expectations of
reduced money creation and eventual increases in interest rates in the
developed world.

Never
mind the Fed’s promises that any such moves will be glacial – that it is
unlikely to trigger any meaningful increases in policy rates until 2014
or 2015. As the more than 1.1 percentage-point increase in 10-year Treasury yields over the past year indicates, markets have an uncanny knack for discounting glacial events in a short period of time.

About Me

I am an investment analyst, portfolio manager, and CFA Chartholder that has worked on both the buy side and sell side in various roles including analyst, portfolio manager, and trader. I have over ten years of experience in the investment industry and characterize my investment style as having a leaning towards value. This blog will track my (and potentially guest author) opinions, managed portfolios, and investment ideas.